We interviewed Northstar's CEO and Co-Founder, Will Peng, on how he and his team are democratizing access to financial advisors.
We started Northstar because we saw firsthand how complex it is to manage your finances. I graduated with four student loans, a new job, a company 401(k), and credit cards. I was overwhelmed, and basically did nothing. I went with the default payment plan for my loans, and 3 years passed before I realized that they had put me on a 30 year payment plan, costing me thousands of dollars in extra interest.
I learned that I wasn't alone. Key nationwide measures of financial health show a slow motion train wreck. Half of Americans don't have $400 for an emergency, the average student graduate has $35k of student loans, and 95% of millennials aren't saving enough for retirement. I was frustrated to find that in a modern era, the "best" methods for managing money were still manually managed spreadsheets.
Before I started Northstar, I was an investor focused on backing iconic brands and fintech. It was there that I saw an opportunity to act on the dream of autonomous finance — to build a trusted brand to make sense of personal finances, and combine that with new technology that moves money programmatically between bank accounts.
Existing solutions all have major shortcomings:
- Educational content (like blog posts) provide generic advice, and are often biased, because they make money when you sign up for a product they recommend.
- Point solutions address only one vertical aspect of your finances, like student loans or savings. It's important to consider your finances holistically to provide the most accurate advice.
- Horizontal aggregators like budgeting tools show you a lot of data, but without analysis. They may be helpful for the power user, but most people fall off quickly. They’re often biased, recommending products to you because that's how they make money.
- Traditional financial planners are too expensive, and don't fundamentally solve the problem of behavior change in personal finances.
Northstar thinks about personal finances from first principles. In order to create real financial health improvement, you need to:
- Provide the best, objective advice
- Personalize to your situation
- Actually implement the advice
Our solution solves for this through a hybrid approach. We combine human financial planners with autonomous finance to proactively optimize your money. Tell us your life situation — recent grad, starting a family, moving to a new city, buying a home, starting a new job — and we'll build the optimal plan for you. Then, we'll make decisions and move money for you — in the right amounts, at the right times — to save, pay off debt, and invest. It's like a GPS + a personal CFO for your money.
Designing for personal finances is an incredibly complex problem. It's both a problem of how we present information along with how we can ultimately create behavior change. The natural tendency as a designer designing for personal finances is to build a dashboard that presents as much data as possible. But data without analysis can create paralysis. Personal finance products like budgeting apps tend to be built around core behaviors such as categorizing transactions or spending less. These are inherently decaying interfaces that require high motivation from the individual to maintain the behavior. Inevitably, the habit fails to stick because it requires too much effort. Instead, we think about ways we can do the work to understand the data, and present it in a way that’s actionable. We like to say that Northstar does the hard work, then lets the customer press the button and take the credit for it.
We also utilize automation to create a default state where your money is separated into different buckets intended for different purposes (spending, saving, debt, investing, etc.). A specific example of this is the Envelope Method, which is a practical implementation of Richard Thaler's behavioral framework of mental accounting. When you put your money into different categories, or envelopes, you're much more likely to adhere to a new habit because you can lean on the system and have it do the work for you.
In five years, Northstar will have a positive impact on financial access and health. More people will get access to top tier financial guidance, because we democratize access to financial planners, expertise, and automation tools. We believe that you shouldn't need a minimum net worth before a financial advisor will talk to you. You shouldn't need money to make money. We'll also demonstrate improvement in key financial health metrics around wealth creation as well as resilience to financial shocks. Access to financial expertise and automation tools create real behavior change.